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Bull in a China Shop

Just as the Bush administration is finding its free
trade footing, the president faces a decision by Jan. 17 that could
again endanger his trade agenda. Under a U.S. trade statute
reserved for China, the president must decide whether to restrict
imports of a product used to adjust the height of mobility scooter
seats, which are used by those who are physically disabled. Unless
Bush exercises his discretion to deny restrictions, he will send a
terrible signal to other industries that face Chinese competition
— and also to China as it struggles to open up its economy to
foreign competition.

Last October, the U.S. International Trade Commission (ITC)
determined that, in accordance with Section 421 of the Trade Act of
1974, imports of pedestal actuators from China are causing “market
disruption” to U.S. producers of the same merchandise. The ITC also
recommended that the president impose quotas.

This is the first case brought under this China-specific
statute. The president’s decision will set a precedent and could
undermine U.S.-China trade relations at a delicate stage of the
ongoing World Trade Organization negotiations.

The facts of this case are intriguing. It turns out that the
petitioning “industry” is Motion Systems Corp., the only U.S.
company that manufactures pedestal actuators. One of its largest
customers, Electric Mobility (EMC), a producer of mobility
scooters, ended its relationship with Motion Systems for a variety
of reasons. EMC requested bids from other producers around the
world — there are no other viable U.S. sources — and chose a
Chinese manufacturer, CCL Industrial Motor (CIM), with whom it had
cultivated a successful relationship purchasing other parts since
1998.

When Motion Systems was EMC’s supplier, imports of pedestal
actuators from China were nonexistent. Imports from China increased
only after Electric Mobility terminated its contract with MSC and
commenced business with CIM. “If Motion Systems had been more
responsive to our needs, we would not have made the decision to
stop purchasing from them — a decision that was made prior to our
decision to purchase actuators from the Chinese,” wrote EMC’s
president.

A private dispute between a company and its supplier has thus
been transformed into an international trade dispute. Yet, three
ITC commissioners concluded that imports from China are causing a
market disruption in the United States. This suggests that either
the law is poorly designed or that the affirming commissioners
ignored certain facts. Nonetheless, the ITC’s affirmative finding
requires an extraordinary interpretation of causation.

In her dissenting opinion, Commissioner Lynn Bragg concluded:
“This is not a situation in which subject producers in China
targeted the U.S. market with rapidly increasing imports in order
to capture sales from domestic producers; instead, this
investigation presents the limited circumstance of one supplier in
China responding to a specific request from a preexisting
customer.”

In its remedy determination, the commission acknowledged the
“possibility” that Electric Mobility would not resume purchasing
from Motion Systems, but gave the following rationalization:
“Motion Systems is not the only domestic firm that appears capable
[emphasis added] of producing pedestal actuators. Should Electric
Mobility turn to another domestic firm for the pedestal actuators
it needs, this would benefit the domestic industry.”

But Commissioner Deanna Okun, the other dissenting commissioner,
offered the following view: “I do not think that the trade laws are
meant to force a company to purchase from the domestic industry,
and in this case from a single domestic supplier.”

Clearly the ITC is at odds over this case, and possibly with the
statute itself. How this case comports with Congress’ intent that
Section 421 be used only in extraordinary circumstances is
difficult to comprehend. It is imperative that the president deny
relief to the domestic industry, which in this case is one company
whose financial well-being appears largely dependent upon the
customer it seeks to punish.

Statutorily, to deny relief, the president must conclude that
granting it would be contrary to the national economic or national
security interest of the United States. And it is contrary to the
national economic interest “only if the president finds that the
taking of such action would have an adverse impact on the United
States economy clearly greater than the benefits of such action.”
That case can be made.

The cost of mobility scooters dropped from $4,100 to $3,800
after Electric Mobility switched to the Chinese supplier of
pedestal actuators. By impeding this supply chain, the remedy would
have a direct, adverse impact on the physically disabled, as well
as the country’s ailing health care insurance industry. No wonder
that leading representatives of the disabled community filed
comments with the USTR opposing the quotas. Increasing EMS’ costs
would also damage its ability to compete with foreign producers of
mobility scooters. The prospective costs must outweigh the benefits
of a “remedy” that in no way guarantees the resumption of Motion
Systems’ sales or profits. Government meddling to pick winners and
losers is bad enough; it is a travesty when such meddling produces
only losers.

Unless the president denies relief, a flood of frivolous Section
421 cases is likely to be unleashed, undermining the
administration’s efforts to revive its free trade reputation and
causing unnecessary strains with China. At a time when WTO
negotiations are delicate and acutely sensitive to protectionist
undertakings, this development could subvert the administration’s
entire trade policy agenda.